I was driving to work this morning listening to MPR and the Marketplace segment featured an interview with a director from the NGO Global Witness that promoted their new report “Heads in the Sand” talking about the coming global oil supply crunch. “Hey!” I thought to myself, “oil prices have plummeted and gas is cheap again. What in the hell is this guy talking about?” Well, not really, but it sounds good and is probably reflective of the thinking (what there is of it) of the American public.

While not coming right out and stating that the global oil supply is finite and that we’re moving into the “lower quality and harder to extract” part of the inventory, the report is pretty stark in what it does lay out:

Governments have not taken on board the four underlying oil production factors which clearly show there is a problem. Heads in the Sand outlines these factors – declining output, declining discoveries, increasing demand and insufficient projects in the pipeline – which clearly show that the world is facing an imminent oil supply crunch. Some of these factors have been apparent for many years. [1]

Governments and multi-lateral agencies have failed to recognise the imminence and scale of the global oil supply crunch, and most of them remain completely unprepared for its consequences. The report calls for governments to officially acknowledge the crunch and to shift urgently into safe sustainable energy alternatives.

“The world’s governments have been asleep at the wheel. Their collective failure to recognise the imminent end of the oil age means we have lost a decade in which action could have been taken to develop alternatives and avert the worst outcomes of a dramatic drop off in the supply of oil…”

As the gentleman on the radio pointed out this morning, the $147/barrel oil price we saw in 2008 was possible taster of things to come. We still had some wiggle room in supply then. What will happen in the future when we are all trying to bid for oil output that only covers 90% of global demand, or 50%?

I’ve taken a necessary break from this blog to focus on other things (work, family, etc) and to recharge my blogging enthusiasm. No promises on how often I’ll be posting in the future, but please know that this blog is not dead. There’s too many signs popping up about what the future may bring, and most of it ain’t pretty.

Matt Taibbi has a great new article in Rolling Stone about Naked Short Selling and how it has been used & abused by the major Wall Street players for some time. Good stuff and it illustrates a very complex situation clearly, which is a major benefit.

The way these major players manipulate and break the rules is breathtaking. And the watchdogs haven’t gotten any smarter under the new occupants of 1600 Pennsylvania Ave either. Considering that the major banks contributed heavily to both McCain and Obama in the last election cycle, this shouldn’t surprise anyone. Despite the obvious damage being done to the economy at both the macro & micro levels from this white-collar form of pillaging, people aren’t being arrested and laws aren’t being changed at a very fast pace to try and stop this sort of thing from happening in the future. Some ‘change,’ huh?

The American political process is sold to all of us as a left-right (or liberal-conservative) choice. How much ‘choice’ do we really have when the same special interests are the major contributors to both viable candidates?

That’s what we’ve got until there is ‘significant risk’ of a decline in global oil production according to the UK Energy Research Council. We’ve seen lower oil production recently, of course, but the argument can be made (and it’s a good one) that it has more to do with the global economic slowdown versus inability to keep total production numbers up.

The report said the world had used less than half of the planet’s conventional oil, but the remaining resources would be more difficult and expensive to extract.

With exploitation of the world’s reserves running at more than 80 million barrels a day, even major new discoveries, such as in the Gulf of Mexico, would delay a peak by only a few days or weeks.

Robert Gross, of UKERC, said: “The age of easy and cheap oil is coming to an end. It doesn’t suddenly come to an end, but we’re moving to increasingly difficult and expensive oil.”

He said the public should expect to see higher and more volatile petrol costs in the future, with long-distance travel also becoming more expensive.

By 2020 my oldest child will be 18. By the time he turns 30 he (and all of us) could be living in a radically different world. The end of cheap petroleum and the end of the global dollar hegemony are just a few of the forces that will reshape the planet in the 21st century.

In the meantime, if you can manage to hold on to your job things won’t be too bad for some time to come. The economic slowdown has led to less inflationary pressure in the cost of living from what I’m seeing here in the great white north. Long-term, though, I think inflation is inevitable. The US government (and most of its citizens) have racked up huge debts that will be very, very hard to pay off, and if you pay attention to what the Fed is doing on Wall Street, it looks to be trying to monetize the debt as much as possible without triggering inflation and/or panic. The fact that oil prices are not in freefall and gold is showing strength are both votes of no confidence in the dollar. Combine this with the news reports and rumors floating around about the Gulf states not wanting to deal oil for dollars and stories about having a new global reserve currency and you can see that change is coming… just not the sort that Obama or anyone else promised.

The US standard of living has been based in large part on the ability to offload our debt obligations on other countries that need dollars for global trade. Once that comes to an end, there will be many debts that will be impossible to repay. This is a very bad thing in any fiat currency system, which relies on incessant expansion of the money supply to keep going.

Here’s a very good article written by the former chief economist for the International Monetary Fund dealing with how the US has been more or less captured by the financial elites while offering a way out of this mess. It won’t be pleasant reading to many folks, seeing how the current US economic crisis neatly compares to past ones from countries we would make fun of in the past over their financial improprieties. If you know people who still think we’ve hit the ‘bottom’ and that recovery is on the way, this article would be a good corrective.

Mr. Johnson’s proposed plan isn’t fun, but it sounds like it would provide the ‘come to Jesus’ moment that this country really needs to start clearing this mess off the books. Naturally it’s therefore political dynamite to our two major political parties who thrive on donations from the financial sector.

Gail the Actuary has another short overview of peak oil at The Oil Drum today. Great stuff as always from her. The summary section has the good stuff, and I agree with her assessment that the global peak in oil production helped trigger the financial crisis we’re in currently and that low oil prices reflect a temporary glut in supply due to demand destruction, not a permanent state of cornucopian bliss due to magical new supplies of light sweet crude making it to the market.

For all of the hacks (both political and ‘journalistic’) that are calling bottoms to the equity and housing markets, all I can say is bullshit. Banks are keeping large numbers of foreclosed homes off the market to avoid further scuppering house pricing. Likewise, the largest banks are being intentionally opaque with regards to their balance sheets to avoid having to show what levels of toxic crap they’re still holding on to. It is impossible to truly call a bottom until all of these assets are ‘marked to market‘ and cleared off the books. That is unlikely to happen willingly anytime soon, so we’ll continue to bumble along in what looks to be a prolonged, jobless ‘recovery.’

Our entire economic and monetary models are based on perpetual growth, therefore we cannot have economic growth without energy supply growth. Without a real economic recovery starting, we’re stuck in a holding pattern at best. For those people that can hold on to their jobs, there will be deals to be had in the retail sector as the pool of willing shoppers contracts. Like everything else happening right now this will be a temporary phenomena. Eventually we’ll hit some tipping point where we’ll be forced to adapt to the new market conditions. Whether this will be an immediate result of decreasing oil production or some other trigger remains to be seen.

I’ve been way too busy with work, family, etc. to do much original thinking about current events, so I’m passing on interesting things I find on other blogs. In that vein, here’s a short piece by John Robb of Global Guerillas discussing how the ‘global depression’ scenario is becoming the most likely one in his thinking/modelling.

For my part, I’ve been reading and watching what President Obama and his economic team are proposing to do, and it seems very similar to what the last regime did. Keeping the global money game going by sticking it to taxpayers does little to reduce the mountain of debt we are accumulating… all it does is shift the burden away from the bastards that did much to facilitate this crisis in the first place. I’m starting to believe more in the line of thinking that the US may be screwed, but the rest of the world will be screwed even more than we are. There aren’t enough euros, pounds, yuan, gold, or any other financial instrument in the world to soak up all of the trillions of dollars floating around out there.

How this all will shake out is beyond me, but eventually there will have to be a global reset of one sort or another. Until that happens, it’ll be Groundhog Day redux… another month or two passes, and another round of bailouts is proposed… rinse and repeat.

Interesting commentary at Jesse’s Cafe Americain this morning regarding when (not if) the major US banks will be nationalized. While not naming names, the author indicates that the major problem is with the big banks (Citibank, Bank of America, Chase, etc.), and until those banks are truly inspected and cleaned out, we will continue throwing bad money after worse money.

The big banks will, of course, claim this will lead to economic armageddon, and it ,may do so for them personally I suppose. Much like an overgrown forest, though, you need a big fire once in a while to clear out the dead wood and create the opportunities for new growth to take root. Won’t be pretty or fun, but it is necessary.